Chapter Two

A HISTORICAL PERSPECTIVE
ON BUSINESS ETHICS

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Copyright © 2012 John Wiley & Sons

  Describe salient business ethics issues
in precapitalist America
 Understand the ethical foundation of
Chapter 2 capitalism as argued by Adam Smith in
Learning Objectives the 1700s
 Appreciate the delicate balance between
economic growth and stakeholder
rights, particularly labor issues,
throughout U.S. history
 Benchmark an organization to the
Ethics Compliance Program best
practices outlined by the Federal
Sentencing Guidelines
 Conceptualize how to maximize ethical
behaviors in organizations based on an
Optimal Ethics Systems Model

Chapter 2: Collins, Business Ethics

 Economic Growth and Business Ethics in
Precapitalist America

Christopher Columbus’s Arrival:

“Get gold, humanely if possible, but at all hazards-get gold”

Chapter 2: Collins, Business Ethics

 Economic Growth and Business Ethics in
Precapitalist America

Roanoke and Jamestown Settlements

 In the 1580s Walter Raleigh and his business

associates were granted a charter to establish a
colony in the area of modern-day Virginia and North
Carolina to trade, search for minerals, and plunder
Spanish merchant ships

Chapter 2: Collins, Business Ethics

 Economic Growth and Business Ethics in
Precapitalist America

Buildup to the Revolutionary War

 By 1774 more than 2.3 million European colonists
participated in highly regulated business activities
 Business and tax policies exacerbated anti-England
sentiments

Chapter 2: Collins, Business Ethics

 Freedom, Rights, and the Ethics of Capitalism

“We hold these truths to be self-evident, that all men

are created equal, that they are endowed by their
Creator with certain unalienable rights, that among
these are life, liberty, and the pursuit of happiness.”

 Approximately 25,000 colonists died for these rights

during the victorious Revolutionary War

Chapter 2: Collins, Business Ethics

 Freedom, Rights, and the Ethics of Capitalism

The Bill of Rights (1791) included:

 Freedom of speech
 Freedom of the press
 Freedom of religion
 Freedom to petition the government
 Freedom to keep and bear arms
 Freedom from unreasonable search and seizure

Chapter 2: Collins, Business Ethics

 Freedom, Rights, and the Ethics of Capitalism

Adam Smith’s Capitalism

 Adam Smith (1723-90), a prominent

member of the Scottish enlightenment,
applied the concepts “reason” and
“liberty” to a wide range of endeavors,
including philosophy, politics,
economics, and law

Chapter 2: Collins, Business Ethics

 Exhibit 2.1 Ethical Foundation of Capitalism

Isert Exhibit 2.1

Chapter 2: Collins, Business Ethics

 Freedom, Rights, and the Ethics of Capitalism

Smith and Labor Issues

 Freedom and self-interest play central roles in

Smith’s conception of capitalism

 Laborers benefit from capitalism because economic

growth generates more jobs and they are free to
choose an occupation

Chapter 2: Collins, Business Ethics

 Economic Growth Under Capitalism

The Industrial Revolution

The economy boomed when the Industrial Revolution spread

from Britain to the United States in the early 1800s

Chapter 2: Collins, Business Ethics

 Economic  The federal government created
Growth Under
the Interstate Commerce
Capitalism
Commission in 1886
New laws: antitrust,
charters, and liabilities

 A few years later, Congress passed

the Sherman Antitrust Act of
1890

Chapter 2: Collins, Business Ethics

 Labor Issues

Slavery

 The most notable economic problems included

slavery, working conditions, and income and wage
inequality

Chapter 2: Collins, Business Ethics

 Labor Issues

Strikes and Labor Unions

 A labor union is an association of employees that

advances its members’ interests, such as wages,
benefits, work rules, and other conditions of
employment, through collective bargaining with an
employer

Chapter 2: Collins, Business Ethics

 Labor Issues

In the late 1700s, a In 1881, Samuel

free laboring class Gompers helped Five years later, the
emerged in the found the Federation union became the
seaport cities of of Organized Trades American
Boston, and Labor Unions to Federation of Labor
Philadelphia, and unite independent (AFL)
New York labor unions

Chapter 2: Collins, Business Ethics

 Labor Issues

Wages and Compensation

 Capitalism’s emphasis on liberty has increased

national wealth more than any other economic
system

 Economic inequality still remains

Chapter 2: Collins, Business Ethics

 Exhibit 2.3 Economic Class Structure in the United States

Insert Exhibit 2.3

Chapter 2: Collins, Business Ethics

Exhibit 2.4 Median Personal Income by Educational Attainment

Insert Exhibit 2.3

Chapter 2: Collins, Business Ethics

 Labor Issues

 The minimum wage refers to the lowest wage an

employer can legally pay an employee

 A living wage refers to the amount of money a full-

time employee needs to either afford the basic
necessities in life or exceed the poverty threshold

Chapter 2: Collins, Business Ethics

Further Expansion of Stakeholder Rights

Regulations protecting stakeholders against unethical

business practices:
 Food, Drug, and Cosmetic Act Amendments (1962)
 Air Pollution Control Act (1962)
 Equal Pay Act (1963)
 Civil Rights Act (1964)
 Equal Employment Opportunity Commission (1964)
 Cigarette Labeling and Advertising Act (1965)

Chapter 2: Collins, Business Ethics

 Further Expansion of Stakeholder Rights

Regulations (cont.)
 Fair Packaging and Labeling Act (1966)
 Child Protection Act (1966)
 Traffic Safety Act (1966)
 Coal Mining Safety Amendments (1966)
 Flammable Fabrics Act (1967)
 Age Discrimination in Employment Act (1967)
 Consumer Credit Protection Act (1968)
 Interstate Land Sales Full Disclosure Act (1968)

Chapter 2: Collins, Business Ethics

 Federal Sentencing Guidelines

 The continued existence of free market capitalism

depends on organizational employees behaving
ethically

 In 1991, President George H. W. Bush issued new

Federal Sentencing Guidelines

 The guidelines are based on the best practices for

ethics compliance programs

Chapter 2: Collins, Business Ethics

 B Corporations

 In 2007, B Lab, a nonprofit

organization, initiated a third-party
Benefit Corporation, known as a B
Corporation

 It is a certification process for branding

a business as being ethical, sustainable,
and socially responsible

Chapter 2: Collins, Business Ethics

 Exhibit 2.6 Rating System for Manufacturing Firm: Version
1.0

Insert Exhibit 2.6

Chapter 2: Collins, Business Ethics

 The Optimal Ethics Systems Model

 Business ethics scholars and consultants have

developed a variety of audits and surveys to help
organizations account for ethical behaviors

 The Optimal Ethics Systems Model synthesizes these

various approaches into a systematic best practices
framework for reinforcing ethical behaviors

Chapter 2: Collins, Business Ethics

 Exhibit 2.7 Optimal Ethics Systems Model

Insert Exhibit 2.7

Chapter 2: Collins, Business Ethics